WHILE investments from the Middle East into Cambodia are expected to increase over the next few years, the central bank here currently has no plans to launch Islamic banking services.
Recent events like Qatar Airway’s Doha-Phnom Penh flights, which launched earlier this month, have been expected to fuel investments from the Middle East. Last September, the ministry of commerce also forecast that the region would soon be the main export market for Cambodia’s milled rice.
But a representative from Cambodia’s central bank said that Islamic banking services are not the central bank’s priority for now. Such services follow Islamic principles, and bar people from earning interest on loans or from investing in areas involving alcohol, gambling, and pork.
“There is currently no regulatory framework [to allow banks here to start Islamic banking services],” said Nguon Sokha, director-general of the National Bank of Cambodia (NBC). The Financial Sector Development Strategy for 2011-2020 also makes no mention of establishing a framework, she added.
But the central bank’s strategy can change “according to circumstances”, although it has to first ensure that the services would not negatively affect traditional commercial banking here. Banks here have also not requested to launch such services, she said.
Secretary-general of the Islamic Council for Development of Cambodia, Sles Nazy, said the absence of Islamic banking services could be “one of the obstacles that slow down investment from the Middle East”.
“Maybe the market in Cambodia for Muslims is too small” to attract investments into Islamic banking, he said. Cambodia has about 300,000 Muslims, or about two per cent of the population.
As a result, Middle Eastern investors entering the local market may choose to rely on their own capital, which may come from countries with Islamic banking, such as Thailand, he added.
A top-level banking official here, who declined to be named, said local banks would lose out if that happens.
But while having an Islamic banking system “will help”, he feels Cambodia has no urgent need for it. Many investors with overseas dealings are flexible about the banking systems they use because not every country offers Islamic banking, he said.
“It is not as simple as just introducing any product. The central bank has to be clear about what it is all about.”
For example, some countries require banks to operate Islamic services as a separate subsidiary, so that loans, which have to originate from Islamic deposits, can be made more systematically, but other countries do not, he said.
The NBC “has not really thought about” such issues, he added.